Nomura Gets Biggest Fine in 12 Years by Japan Brokers Group

The fine follows an Aug. 3 order by Japanese regulators that Nomura improve compliance after employees tipped off traders ahead of three equity sales by clients in 2010, Chief Executive Officer Kenichi Watanabe and Chief Operating Officer Takumi Shibata resigned in the wake of the scandal. Photographer: Kiyoshi Ota/Bloomberg

Oct. 16 (Bloomberg) -- Nomura Holdings Inc. was fined 300
million yen ($3.8 million), the biggest penalty by the Japan
Securities Dealers Association against any firm in 12 years,
after employees leaked information on clients’ plans.

The Nomura Securities Co. domestic brokerage unit lacked
internal controls to safeguard information on share sales it
managed in 2010, the self-regulatory group for brokers said in a
statement on its website today. The fine follows an Aug. 3 order
by regulators that Tokyo-based Nomura, Japan’s biggest
brokerage, improve compliance.

Brokerages in Japan are seeking an end to a crackdown on
confidentiality breaches that cost Nomura’s two top executives
their jobs and implicated staff from at least four securities
firms including JPMorgan Chase & Co. A three-year U.S. probe
into insider trading is set to result in a sentencing for former
Goldman Sachs Group Inc. director Rajat Gupta this month.

“The amount really isn’t that big compared with cases in
the U.S.,” said Takao Saga, a professor who studies the
financial industry at Waseda University in Tokyo. “There are
still clouds hanging over the Japanese stock market as
individual investors stay away and overseas investors think
regulations are lax.”

Japanese politicians have urged that rules barring the
government from imposing fines against companies that leak
information be toughened. The Financial Services Agency is
preparing legislation that would establish penalties for
tipsters and impose stricter punishment for insider trading.

U.S. Clampdown

In the U.S., judges are lengthening sentences as part of a
clampdown on insider trading on Wall Street. Since Jan. 1, 2011,
Manhattan judges have sent the average violator to prison for
more than 22 months, up 20 percent over the previous eight
years, according to an analysis of sentencing data by Bloomberg.

Gupta faces as many as 20 years for leaking stock tips to
Galleon Group LLC co-founder Raj Rajaratnam. He will be
sentenced on Oct. 24 for his part in the biggest hedge fund
insider trading scheme in U.S. history.

Nomura said in June that employees provided information on
offerings it arranged for Mizuho Financial Group Inc., Inpex
Corp. and Tokyo Electric Power Co. to traders who sold the
stocks before the deals were announced in 2010.

“We take this matter seriously,” Nomura said in an e-mailed statement today. “We will continue to further enhance
our internal controls while working to prevent similar incidents
and regain the trust of the public.”

Tarnished Reputation

The revelations tarnished Nomura’s reputation and led it to
lose underwriting deals. Chief Executive Officer Kenichi
Watanabe and Chief Operating Officer Takumi Shibata resigned in
the wake of the scandal. Koji Nagai, who replaced Watanabe as
CEO on Aug. 1, has vowed to avoid a repeat of the leaks.

Nomura’s fine exceeds the 200 million yen the dealers’
association imposed on SMBC Nikko Securities Inc. in June and
was the biggest since Minami Securities was docked 500 million
yen in 2000. SMBC Nikko, a unit of Japan’s second-biggest bank
by market value, was found to have solicited clients by giving
them confidential information on a public offering.

The dealers’ group is made up of more than 500 securities
firms and other financial institutions operating in Japan,
according to its website.

“Imposing a fine is a reminder that you will be penalized
if you breach rules, so it works as a deterrent,” Waseda
University’s Saga said.